- EUR/GBP rallies over 50 pips from the 100-day SMA support and jumps to a multi-day peak.
- The ECB’s hawkish outlook boosts the shared currency and remains supportive of the move.
- Bets for further rate hikes by the BoE underpin the British Pound and might cap the upside.
The EUR/GBP cross rebounds swiftly from the 100-day Simple Moving Average (SMA) support, around the 0.8780 area and turns positive for the second successive day on Thursday. Spot prices rally to a four-day peak, around the 0.8820 region during the first half of the European session and seem poised to appreciate further.
The shared currency strengthens across the board after the European Central Bank (ECB), in its Economic Bulletin, noted that inflation is projected to remain too high for too long. This comes on the back of the recent hawkish commentary by several ECB officials and reaffirms bets for additional interest rate hikes in coming months, which, in turn, prompts aggressive short-covering around the EUR/GBP cross.
It is worth recalling that the ECB chief economist Philip Lane reiterated that rates would need to rise several times to make sure inflation comes down to 2%. Adding to this, Slovak central bank chief Peter Kazimir noted the ECB should not change its stance on rates, though advocated the case for slower rises following three straight 50 bps hikes. This reinforces prospects for further policy tightening by the ECB.
The EUR/GBP bulls, meanwhile, seem rather unaffected by softer Eurozone inflation data, which showed that the Spanish Harmonized Index of Consumer Prices (HICP) fell to 1.1% in March from 0.9% recorded in the previous month. The flash German Harmonized Index of Consumer Prices in March, meanwhile showed the opposite, with inflation rising by a greater-than-expected 1.1% on a MoM basis versus the 0.8% forecast and the 1.0% previous. The data further showed the same metric rising 7.8% YoY versus 7.5% forecast and 9.3% previously.
In the meantime, rising bets for further rate hikes by the Bank of England (BoE) might continue to underpin the British Pound and cap gains for the cross. In fact, the UK central bank Governor Andrew Bailey said earlier this week that interest rates may have to move higher if there were signs of persistent inflationary pressure. This might hold back traders from placing aggressive bullish bets around the EUR/GBP cross.
Technical levels to watch
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